The Math of CRO - Whiteboard&nbspFriday

This post was promoted from YouMoz. The author’s views are entirely his or her own (excluding an unlikely case of hypnosis) and may not reflect the views of Moz.

This week we are talking about math.... Don't worry it's not the tough kind that Isaac Newton used to do, but the math behind Conversion Rate Optimization (CRO). This week Rick Perreault from Unbounce joins us to show the value behind CRO and how you can show its value to your clients/bosses. After watching what Rick has to say, share a comment about your experience with CRO.

Video Transcription

Hi, I'm Rick Perreault. I am cofounder and CEO of Unbounce.com. Unbounce is a platform that allows marketers to create and A/B test landing pages without having to rely on IT. That is really a part of conversion rate optimization, which is today's subject.

When Rand asked me to come up here and do one of these Whiteboard Fridays and he asked me to do it on conversion rate optimization, you know, I run a software company. I am not a conversion rate optimization expert. However, I see hundreds of people do it every day, and I have experienced this through much of my career. So I am going to share with you what I've seen and how I've seen conversion rate optimization actually bring far more ROI to your online campaigns than not doing it.

So, let me begin. Let's imagine this as a period of a three-month campaign. In the old days, and to some degree still today, marketers are really concerned about what happens getting people to click an ad. Let's just say I'm using . . . these are all sample numbers. Just to keep the math simple. So, let's just say month one I've got $1,000 budget and I generate 1,000 clicks and I convert, my conversion rate 1%. I get 10 customers at a cost of acquiring that customer of about $100.

Now, so month two, I say, "Okay, that's pretty good." Now if I am going to get more sales, generate more customers, I just need to increase how much I am spending on advertising. So I increase that to $2,000 and I get 2,000 clicks. I'm still converting at 1%. The result of that, I get 20 customers at a cost of acquisition of still $100 per customer. That hasn't changed.

Month three, now I am going to increase that to $3,000. I get my 3,000 clicks. Again, convert at 1%, generates me 30 customers, again CPA stays at $100. Over a three-month period, a total spent of $6,000 generates me 60 sales. That's pretty good.

Now, as time has gone on, something has changes. Smart marketers realized they could actually get even more ROI from this online advertising by focusing on what happens after the ads are clicked and focusing on moving this number higher. This is what we call conversion rate optimization. That's A/B testing, using unique landing experiences, using analytics, and really understanding what happens after somebody clicks your ad.

So, in this example, I use the same thing. I spend my $1,000 to get my 1,000 clicks. But this time I am going to spend $200 on conversion rate optimization, and by using analytics and some A/B testing, quite quickly I am able to push my conversion rate up. So now, I push it up to 1.5%. What we see happen here, now I've generated 15 customers, but more importantly, my cost of acquisition has gone down to $80, a 20% improvement on the ROI.

So the next month, I continue and I spend my $1,000. I generate my 1,000 clicks. Again, I continue with my budget, my conversion rate optimization budget. Again, I do some more A/B testing, do some more analytics, create some more landing pages, improve it, test buttons, test messaging. I am able to push it up. Get 2% conversion rate. Now, look what happens here, again 20 customers at $60 to acquire them. So, again, even a better saving.

In this case, I spent $5,600 to generate 95 sales. Here I spent $6,000 to generate 60. The reason I was able to generate more sales on relatively the same ad spend is because I stopped worrying about just what was going on here and started focusing on what was going on here. This is the math of conversion rate optimization and this is why it is important.

So next time you are talking to your boss or a client and they're trying to understand the value of A/B testing or using a landing page or just spending any time on thinking of what happens after their ads are clicked, the landing experiences, walk them through this exercise.

Very disappointing WBF. I'm loving unbounce but come on now. I like seomoz because I learn advanced SEO, but this guy basically spent 5 minutes explaining what CRO is when really all you need to know is in the name "Conversion Rate Optimization"

Agree. Every book on CRO stars with this calculations. But this model rely only on part of complex conversion system. Comparison beetween different funnel parts may be much usefull, because this segment is not always best one to focus on.

Thanks so much for the feedback both positive and negative. I think there is some valid points throught these comments. My intention was to provide a means to communicate the benefits of investing in CRO to C level management and tried to keep it short. However, seems like it would have been worthwhile to finish up with some real-world example. Maybe next time I'm at the Moz office I'll do a Part II.

I think you did a good job Rick. It's a basic concept and you gave a basic explanation. Advanced users often get lost in their advanced work and sometimes forget the basics.

And to the complainers calling themselves "advanced," why can't you think for yourself? Do you need Rand or Dr. Pete to forcefeed you an advanced concept? If you do then you're not as advanced as you think. Take this basic concept and apply it to your own work. If you're doing just fine then move along, nothing to see here. But you'll be surprised by what you'll find if you take the time to look.

After you posted this video, I immediately sent it to two of my clients. The light clicked on for both of them, and they both asked what we needed to do to get started. I think the video did exactly what your goal was.

Thanks for giving us a nice resource to either share or to mimic in our own presentations.

Thanks for all the great feedback everyone. No matter who you are (except for maybe Rand), doing a Whiteboard Friday can be quite intimidating. Check out how horrifying my first one was: http://www.seomoz.org/blog/whiteboard-friday-5-things-youre-not-doing-but-should-be. I mean talk about horrible! And you were all very kind to me and helpful. Let's give Rick helpful feedback and make him feel like a part of the awesome community that we are rather than jumping all over him. I understand it's beginner for most of you, but some people have enjoyed it. The constructive criticism is great, but the downright rude comments, not so cool. How well do you think you'd do on your first Whiteboard Friday? (I know I sucked!)

I was thinking the same thing! Guest speaking can be very challenging, takes practice and it's not for everyone. Overall I think Rick did a great job. He was clear with his message, always looked at the camera and had the presence of mind to give us a clear view of the board. Maybe this WBF was not as advanced as some of us have come to expect but a little diversity can't hurt. How about we have Rick come back for a WBF Redemption?

the picture looks bright but would have loved the article if it has been supported by some real examples, actual conversion rate optimization and generating content for A/B testing is very much different and while experimenting your conversion rate may go double. And by the way i have seen in campaigns that if once your cpc goes high its really difficult to go back to the previous low state.

I would love to see the real picture of how to do it our how you have done it. i have a similar story of getting 1% bounce rate and would definately bring it to the blog.

I understand what everyone is saying here (and judging by thumbs), but I think we need to throw Rick a bone here. I believe this is his first WBF, right?

I think we can all agree that Rand sets the bar incredibly high..and this can sometimes unfairly bias judgment to presenters who follow him. I do applaud the team for trying to bring in more presenters for WBF. As others have said, maybe Rick can give it another whirl with deeper analysis and examples.

This growing community does contain an audience of all different levels of expertise, so I think it's only fair that some content is more basic in nature. I think this WBF reminds us of how important it is to educate others the true meaning of CRO.

I agree Kyle. It seems that by some of the (borderline rude) commenters are forgetting that many mozzers are clients/beginners that may not know as much as others.

And I second Mark's comment above, it's nice to have basic info every now and again when you're always working with so many verticals.

The bottom line is that while most of the information is-and should-be advanced in our community, that doesn't mean that we should say things in poor taste because it's not what we "expected" on a WBF. Thanks for the WBF Rick, looking forward to part II.

Hi Rick, I have to agree it is a disappointing WBF (so you HAVE to do a second one soon to make it up!). I didn’t particularly enjoy it because the info is very basic.

My suggestions:

You should probably try to not to move as much as you did in this video as this is very distracting for the viewer (stay in the right or left side and write on the other side)

Also I think the presentation duration should be closer to 10 minutes so you have the time to go deeper (using a case study would be a way to do that)

Try to avoid using text and replace it with some drawings if possible (charts, diagrams or other goodies - I believe a funnel would do the trick in this case). If not possible use different colors for text

If you don't understand today's white board friday and your in marketing and your spending clients money then I'm sorry but I don't think you should be in marketing at all are we going to have a video on keyword meta tags next week?!?

There are a lot of people in marketing that don't actually touch the math; Copywriters and Designers are both essential to marketing teams and neither would find marketing economics madatory for doing their job.

Sorry but this video was a big waste of time for me, I could see what the math said on the board within 30 seconds, then had to wait 5 minutes to find out thats the only thing that was discussed.

I agree with lots of the other comments, there should have been examples. Or if you are discussing the mathematics of conversion rate optimisation you may wish to go into further detail, such as calculating the statistical significance - for example how many visits you need to determine a 95% level of confidence.

Hi Mate, Good top level analysis of CRO and some good figures for management on paper.

But I agree with the comments above would be great too see some real world examples with CRO =) I remember the unbounce website has some fantastic examples with SEOmoz and the work they have been doing on the site.

I'd say this isn't reallt supposed to be about examles - more about the economics of the concept. Once you can see the vsalue in doing CRO, you can use it to your advantage and create your own examples.

If case studies are what you seek, I'd check out this example we did with one of our PDF content pieces (originally a guest pist here on SEOmoz) - http://unbounce.com/social-media/how-i-created-a-viral-ebook-landing-page-for-8-using-themeforest-paywithatweet-kissinsights-and-unbounce/

Then I'd look to VisualWebsiteOptimizer.com as they have some great case studies.

Rick - you took some heat on this one - but please don't hesitate to come back and dig in deeper next time. I actually enjoyed the basic lesson because I'm juggling so many balls that sometimes a lesson like this reminds me to focus on the key metrics - just like I tell clients all the time! Good WBF and hope you are back for more.

This is definitely a white board topic that interests me. I don't want to sound like I am beating a dead horse but if we could get a more in-depth one with some case studies/examples it would be a huge hit. CRO is such an important part of the process.

SEO doesn't end with rankings/traffic, the traffic is useless if you aren't converting it. I'm glad to see more SEOs are realizing this and including it in services they offer.

Nice overview but you got to watch your math to compare apples to apples. Unless I misunderstood your explanation, the second group - with the added efforts to increasing conversion rates - you should have been spending $2,000 and not $1,000 as indicated on the whiteboard. That would have made it on par with the first group.

As one of those less high-flying marketers here, I spend too much of every day battling against the misinformation that my very small business clients come armed with.

"Just get me more clicks" is perhaps the most frustrating thing I hear.

For the most part these clients will pay lip service to the idea of increasing conversions "of course we need to convert more", but they really have no understanding of the impact it can make on their bottom line.

When "of course we need to convert more" is closely followed by "do we really need to bother with that" in response to suggestions for simple page improvements aimed at better conversion, it is clear that they don't really get it.

This usually means I need to spend valuable time walking them through the most basic motivational concept of CRO - get more sales from the same advertising spend and you make more money. That is really all that they need to understand. Once they actually connect with the concept, conversion is suddenly on the radar!

Now I have the perfect resource to help get them to that point. I'll be sharing this WBF a lot.

A very simple and quick CRO Math for calculating the CPA. After the site starts getting the targeted traffic and good visibility in the search engines then the focus on how to get this targeted traffic to click and convert is the biggest challenge.

As SEO is not a one time thing CRO is also something you need to go on implementing till you reach the desired cost and benefit acheivement levels.

Today infact every business owner who wants a quality web presence need to have SEOs, a Social media team and CRO experts in-house or need to hire these services.

Whether it is CRO, Social Media management or SEO everything is becoming so specialized and to get the right results we do need people focused for each of these individual areas.

After working on educating the clients on what good SEO practices are all about , educating them on CRO and A/B testing is the very much needed next step.

agree with you ma'am, but do u really believe tht to educate clients about A/B testing is needed??? i mean we can do tht without explaining to client by telling him/her about result or by showing him the ROI instead of educated him/her about A/B testing leanding pages....

This WBF was great for: Someone who has never heard of CRO before in their lives.

This WBF was NOT great for: Someone who actively does this work every single day of their lives, which I would think constitutes more of SEOMoz's audience than the latter - though I could be wrong.

No doubt Rick is a very smart guy and I mean no disrespect at all, but I think the problem with this video is it underestimated its audience or just plain sold itself wrong.

This would be PERFECT material for a CEO who is clueless as to what CRO is and needs to be shown the simple mathematics that "easier/better for converting = save money on conversions". If it had been branded as such in the title or in a little preamble prior to jumping in I don't think the thumbs down outpouring would have transpired.But for me and for what I imagine is most of the SEOMoz audience this was just too basic. I look forward to seeing Rick take to the stage again (granted the community has not put him off of doing WBF's forever) and delivering something a little more "inferno" grade fire.

I have to be critical of Rick's first WBF but if this was intended to be an explanation of the economics of CRO it was missing some vital data. In example 2 Rick shows the ad spend and conversion rate increasing month by month but neglects to mention the cost of improving that conversion rate from 1% to 2%.

Doubling a conversion rate isn't going to come from changing the colour of a button. It will require multiple experiments with new copy, images, layout and design that all come at a cost. With several iterations and the inevitable experiments that have no effect on conversion rate, that cost may be greater than any additional profit that may or may not result from the experiment. I'm not suggesting that we shouldn't ever experiment with our websites but the cost benefits are not quite as clear cut as the founder of Unbounce may want you to believe! If you want to try split testing for free try Google Website Optimizer. Great free tool!

Hey Rick, it was a great video and a nice WBF: simple but effective. Agree with some others who expected some more action, data or examples but honestly that makes the perfect excuse to do a Part II with an in-depth pov & examples.

The people saying it was lame should already be doing their own international company, WBF and teach the rest of us about teaching a community of 100.000 users and making all of them happy at the same time.

First of all I want to welcome Rick on the WBF. Thanks for sharing your insights with us. I think you had given us the most effective way to increase the sales via CRO( Convertion rate optimization) which is seems to be quite intersting. Most of the people were focused only on CPC & not on CRO . But Rick I want from you to please mentioned the steps or the crucial procedures that should be the part of effective CRO.

This posts value came with the fact that it simplified the value of CRO to new marketers and SEOs who have no experience with CRO.

It could have done more in terms of telling us where to go next for authoritative instructions on how to set up a CRO campaign.

_______________

Edit:

I have sinced searched SEOmoz for more info on CRO- which is a benefit of this post: it got me interested in learning more. I found this link in one of the posts that has helped me in setting a CRO campaign with Google software.

i think every post in WBF have some meaning for each of us... i read some comment that pointed out disappoinment for this post, but we should think for other community members as well... they might find it helpful anyways...

i just wanted to pointed out here that this could be the very streat post on CRO.. I m hoping for more as well and i knew tht WBF will nerver disappoint us....

i hope to get more maths on how to create it rather how to it work!! very soon..

We all wait for WBF eagerly and maybe for some experts the information can be basic, but we should definitely care about our remarks. I am a great fan of this blog and would like to see some learning coming through the comments as well. Would wait for a second post from Rick with some more insights in CRO and A/B testing.

It may have been said once, but the cost of increasing the conversion rates wasn't factored into the CPA, so technically the numbers are a bit off when you look at it from that standpoint.

But it was still good information . . . for beginners. But like was also mentioned, SEOmoz doesn't neglect beginners. But not having beginner information on WhiteBoard Firday would be preferable. I think SEOmoz members seem to associate WhiteBoard Friday with something special--you know, that quality, valuable content they're always talking about.

Initially, I was a little disappointed by this WBF. Having read the comments and responses I have changed my mind, instead think that there is nothing wrong with the video, it just does not fulfill audience expectations.

I expect most people read the brilliant post on titles recently by Dan Shure (http://www.seomoz.org/blog/are-your-titles-irresistibly-click-worthy-viral). Well this post falls foul of one of the issues mentioned in Dan's post. Rick's title makes it seem that we will get some deep insight into the mathematical formulae that underpin CRO. In reality he presented 'Understanding the basic math of CRO'.

Add to that the expectation of a very well informed Moz crowd who are used to deep detailed insight from WBFs and it is no surprise a few people feel short-changed. I hope Rick does another WBF in future and just pays a bit more attention to audience and relative expectations. I'm sure we will all be blown away (as we all want to be!)

Hi Rick, Welcome to WBF! "what happens after the click" lol, that's really the other half of the battle! A/B testing is great to help tweak the most effective landing pages for site visitors. Overall, your video was almost too simple and didn't really get into conversion rate optimization.

Ugh. There's so much more to understanding conversion rate and ad spend than traffic/orders=conversion rate. Are you taking into consideration new vs return visitors? Is this purely looking at cost per action, or are you measuring the cost of acquiring a customer? Are you filtering out existing customers so you aren't counting an action on a ad click from an existing customer as a new customer? There are so many other ways you could have cut this than the simple formula.

And for the record, if I was spending a buck a click and had a CPA of $100 (or the aforementioned $58 CPA for that matter), my ass would be on the street looking for a new job (although I'm sure those numbers would be outstanding if you were trying to acquire along the lines of meso clients for a class action).

I think most marketers understand that what happens after the click is equally as important if not more important than getting the click. I would've like to see stats in regards to what sort of changes made (that cost $200) that increased the percentage. For example, shortening the contact form usually has this result or adding video to the page accounted for a certain result. In general, the math is simple. Increase the amount of conversions without increasing spend and you get a lower cost per customer. I don't believe your math included the CRO fee, which is technically increasing the spend.

I would love some real-world examples of how CRO has made a difference. Anything that helps me persuade clients not to waste the traffic they're paying their hard earned cash for would help! If people could see their prospects turning up, then walking away disapointed I'm sure they'd do something about it.

It was just the other day that I was watching Rand talking on Mixergy when he mentioned bringing someone from Unbounce down, so I'm thrilled to see you here and especially thrilled to see that Rand threw you onto the Whiteboard! Friday's are meant to be relaxing, so there's nothing better than a WBF that is simple and to the point.

It's not about how many things you learn from the WBF, it's how many things you learnt really well and that's what this video did so shrug off those complaining about it being so simple!

I'm starting out in the world of search (been operating as an affiliate for a year, and we are going in-house for our other business' site). Have to say looked at the title of this WBF and then all the figures on the white board and thought - "scary" and then watched it, and have to say was pretty 1.01 - very unusual to have something that I am more advanced than! However some of the links in the threads above are interesting, so guess the WBF served as a catalyst.

It is a good broadcast, but would say perhaps better off on a more beginners website - or as stated above - augment with some real examples of CRO.

However, look, it was a smartly presented video, some begginers would have enjoyed it, it took time to produce, so thanks for that (it's easy to be a critic, especially from the seculusion of a Costa Coffee in Finchley North London).

What I took from the WBF was a prompt to research more about CRO so it has been beneficial to mhy development..

This is the perfect video to show one of my clients! its such a pain in the butt trying to explain this stuff somtimes. And it somtimes comes accross as if im trying to just sponge more money out of them doing CRO testing, when im not! just trying to save them money.

Does SEOMoz even know the average demographics of the WBF audience as far as SEM sophistication so the presenter can adjust the level of their presentation accordingly? Seems like this one was aiming too low.

I want to see the specifics of how he gets from 1.5% to 2.0% conversion. My 6-the grader can measure a conversion rate and cost of conversion.

Thanks for your feedback, however we do try to cover all ranges on the blog and we like to give people in the community a chance to do Whiteboard Friday's. I appreciate that you didn't like this one but please refrain from your derogatory remarks and I'd suggest you take a look at our Blog disclaimer for future comments.

Listen: Rick had the guts to put his face out there and make some content. He has been very responsive to the constructive negative feedback.

Sometimes talented people miss. I've seen industry and thought leaders freeze and fail in all kinds of ways, but they dust themselves off and move on. If we don't have anything useful to say, I suggest that it's enough to vote and move on.